WASHINGTON — Though the
"Two-tiered regulation by its nature falls apart because the regulators develop a familiar way of doing things, particularly for big banks, and they hold it up to the small banks," said Kip Weissman, a partner at
Under the bill, bank companies with more than $50 billion of assets are automatically considered systemically important and subject to tougher capital, liquidity and leverage rules. But banks below that threshold should pay attention to the standards, too, observers said.
"We would certainly hope that a systemic-risk regulator will go above and beyond disseminating those practices among systemic institutions and disseminate them among all institutions," said Kevin Jacques, the
Satish Kini, a co-chairman of
"I think bank holding companies that are not the largest bank holding companies will be covered by the higher standards," he said. "Those standards are apt to filter down. It may be risk management practices. It may be other types of things."
Many smaller banks may start looking to the public filings of the largest institutions to see how they are implementing new requirements, observers said. Most systemically important companies will have to detail new policies with the
"If you are an identified significant institution, I think there is going to emerge an obligation to tell people whether your activities or services might lead the Fed to impose additional regulations," said Joseph Lynyak, a partner at
Some requirements may already be taking effect. Under a provision added by
"The big thing that's going to trickle down is the Collins amendment and capital requirements," said Chip MacDonald, a partner at the
Paul Miller, a managing director at
"You can't issue them anymore," he said. "It's a moot point. Those small guys that issued trust-preferreds issued them all into the CDO structures, and those CDO structures are broken down and won't be followed anymore."
Diane Casey-Landry, the senior executive vice president and chief operating officer of the
'Pure Equity'
"Through Basel, you've already got more focus on pure equity, and Collins just accelerated that and the direction of Basel III," she said. "For the smaller banks, the smaller you are, the more difficult it is to raise capital, and trust-preferreds provided an affordable tool, and I feel we are going to have a lack of readily available capital for community banks."
Observers also pointed to the planned
"If there is some practice found unfair and deceptive at
For example, although lawmakers considered and rejected creating a "plain-vanilla" standard for mortgages, several observers said it may be created by default as the CFPB targets loan products it views as unfair or abusive.
Overly Cautious
"The overall impact of the legislation … will drive the industry toward plain-vanilla products and very cautious underwriting standards," said Andrew Sandler, a co-chairman of
Community banks have already raised concerns about another part of the bill that is expressly not directed at them: interchange limits. Under the law, the
"The smaller institutions think that's going to trickle down because merchants will be putting pressure on their companies and their clients not just the big ones," said Cornelius Hurley of the
Even stress testing, which the law requires for banks with more than $10 billion of assets, may become a standard of supervision.
"Over time, one emerging sound practice will be stress testing," said Richard Spillenkothen, formerly the head of supervision at the Fed and now a director in
Others said thrift holding companies will soon follow the standards of bank holding companies.
"I would envision over time there would be some changes in the structure of the thrift holding company … , at a minimum the capital requirements under the